Severin Borenstein (University of California Energy Institute and Haas School of Business, University of California, Berkeley) James Bushnell (UC Energy Institute, Berkeley) Frank Wolak (Stanford University and NBER)
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Effective competition in wholesale electricity markets is the cornerstone of the deregulation of the electricity generation industry. We examine the degree of competition in the California wholesale electricity market during June-November 1998 by comparing the market prices with estimates of the prices that would have resulted if all firms were price takers. We find that there were significant departures from competitive pricing and that it was most pronounced during the highest demand periods. Overall, this raised the cost of power purchases by about 22% above the competitive level. We also explain why the prices observed cannot be attributed to competitive peak-load pricing.
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